Complex organizations, tax policy and financial stability

Giovanna Nicodano and Luca Regis ()

No 359, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: This paper develops a theory of corporate ownership and leverage of multi- ple firms under a tax-bankruptcy trade-off, allowing for internal bailouts. It then questions whether tax policy contributes to the default of the resulting complex or- ganization. Absent other taxes and non-financial synergies, ownership is irrelevant to firm value. With Intercorporate Dividend Taxes, SPV-like subsidiaries or hori- zontal groups are optimal as they avoid double-taxation while preserving the tax benefits of debt. Adding Thin Capitalization rules makes complex organizations more stable than stand-alone firms. These results suggest to extend both corrective taxes to SPVs so as to promote financial stability.

Keywords: ownership structure; default; dividend taxes; Thin Capitalization; parent subsidiary; debt shifting; securitization. (search for similar items in EconPapers)
JEL-codes: G32 H25 H32 L22 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014, Revised 2015
New Economics Papers: this item is included in nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:359

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